(Editors' Note: This article discusses a micro-cap stock. Please be aware of the risks associated with these stocks.)
The old adage is true, a picture is truly worth a thousand words. Especially for investors in "patent play" stocks such as Worlds, Inc. (OTCQB:WDDD) and others, who are often starved for glimpses into the strange and generally slow-moving world of the Federal Judiciary. While sophisticated investors realize the importance of utilizing experienced patent litigators to help them evaluate the progress and opportunity presented by these patent play stocks, many if not most other investors either lack the awareness or means to obtain the necessary outside advice. For example, while a hedge fund with a large position in a patent play stock would surely find value in the cost of sending an experienced patent litigator to cover any trial impacting their position, obtaining such insight would be cost-prohibitive for many retail investors. Nonetheless, it is hard for investors not to see the value in watching litigation events unfold live, or to not understand that an experienced patent litigator would be a better "watcher" and interpreter of those events than someone who is not. Fortunately, the Federal Judiciary has instituted a courtroom-video Pilot Program, where select arguments are made publicly available if the parties agree that their particular hearing can be included. In an interesting development for patent play investors, and in particular for investors in WDDD and Activision Blizzard (NASDAQ:ATVI), a recent summary judgment argument (the underlying issue was covered in our article here) involving those two parties is now available for viewing here. The video quality is quite good, and it is a worthwhile watch for those looking to learn more about how patent litigation issues are handled in Federal Court.
1) What sort of patent litigation events are important enough to see live (or on video, if available, at minimum) if possible?
While there is a valid argument that as much due diligence should be done on a patent matter before investing as possible, which would include a full analysis of the Court that a company's case is pending in (and a visit to that Court to see how the Judge behaves during any civil, even a non-patent, oral argument and case,) there are three key types of courtroom-events where the presence (and subsequent reporting of) outside patent litigation counsel would be most helpful. First and foremost, trial - even though that is usually one of the last events in a particular case, and savvy patent play investors may have already benefited from earlier case events before liquidating the majority of their positions. Second, Summary Judgment and Daubert Hearings, particularly on case dispositive issues and issues relating to damages. Third, Markman hearings, if only to get a sense of the Judge's comfort level with the technology at issue, and counsel for the parties' skill at presenting argument based on that technology. In other words, if the argument at issue (the summary judgment motion) sets up a binary trading event because of its case dispositive nature, as we predicted in our previous article on the Worlds/Activision case, linked above, the investment in outside counsel guidance is likely a no-brainer for investors.
Finally, those tracking appeals (whether themselves or utilizing patent litigation counsel for guidance) will surely want to listen to the audio recordings of any Federal Circuit arguments impacting on their investments, even if the decision is made not to attend the arguments live.
2) What can you learn from watching Counsel and the Court?
As noted above, there is a lot investors and their advisors (particularly if those advisors are patent litigators themselves) can learn from watching a courtroom event. At the very least, one can usually assess the demeanor, technological comfort level, and engagement of the Judge in the case - an important consideration because of the myriad of strictly legal (e.g., claim construction, summary judgment) issues presented in patent cases. Whether or not the "bench" i.e., the Judge (or panel of judges in a Federal Circuit appeal) is "hot" (e.g., asking a lot of questions or challenging a lawyer during argument) or "cold" (e.g., dispassionately letting the lawyer present the argument with minimal questioning) can often provide a sense of how important or challenging the issues presented are to the Court. And of course the actual content of the questions being asked by the Judge can often suggest which side of the argument is being better received. Likewise, the amount of time given for argument is often telling in terms of how important the issue presented is considered by the Court.
Just as watching the bench is important, so too should investors evaluate counsel's performance during oral argument. First off, investors are generally advised that competent counsel will almost surely have been retained by both sides of any patent infringement case of note. For example, both Worlds and Activision have hired highly-regarded law firms to represent them. Of course, investors are rightly more concerned with the particular lawyers, rather than the firm, who are handling a matter, and watching those lawyers in action is often the best way to evaluate their skill and engagement with a particular case. Of particular, but perhaps not obvious, importance is seeing who actually is presenting what parts of an argument. For example, it is not unusual at Markman hearings to have different lawyers on each team present argument on particular claim terms, with the most important terms usually handled by lead trial counsel. Likewise, lead trial counsel will usually present the argument at critical summary judgment hearings, or present the direct and cross of the most important witnesses at trial. While patent litigation is surely a team sport, much can be gleaned by the composition and deployment of that team. For example, at the Worlds summary judgment hearing, lead counsel for Activision handled the argument on the company's behalf, indicating that the issue is considered a potential winner (as lead counsel usually find a way to delegate arguments they feel might be losers to less experienced attorneys) and that Activision is prepared to spend top dollar on its defense. Investors are rightly interested in such details, just as they want to see how the lawyers handle the pressure of presenting their arguments in these high-stakes matters.
3) What is next for Worlds & Activision?
The short answer to this question is the proverbial "hurry up and wait" - in this case for Judge Casper's decision on Activision's summary judgment motion. And it will be a very important decision, as a decision in Activision's favor could torpedo the validity of the Worlds patent family, and with it the hopes of many of the company's investors. Interestingly, because the video was made available publicly, investors can see Worlds' lead counsel ask Judge Casper at the very end if she would be willing to lift the informal stay she has put on the proceedings in light of the summary judgment motion - Worlds really wants to at least get a Markman date on the calendar - to no avail. Absent the video (or at least access to the transcript, which often takes time to become available,) it would have been hard to know without being in the courtroom whether that question was asked, much less how it was received. And the fact that Judge Casper declined to consider granting a date for the Markman hearing (after having postponed it in response to the summary judgment motion being filed) suggests at minimum that she appreciates the case dispositive potential of the motion. Given the busy dockets faced by Federal Courts nationwide, it is no surprise that judges often try to only address issues when they absolutely need to. Depending on her decision, Judge Casper may never need to hold a Markman hearing in this case at all. If the Judge were to buy into Activision counsel's argument (the case law is indeed on their side), this may be a quick decision. Yet if the Judge were to consider the balance of equities, as urged by Worlds' counsel, her sense of fairness may lead to a different result, however unlikely.
Ultimately, investors interested in the patent play sector need every edge they can get when it comes to arbitraging litigation events. Hopefully, the video Pilot Program succeeds, and results in more transparency when it comes to hearings and potentially even trials, assuming that certain highly confidential issues can remain so in the process. For investors in Worlds, it is clear that this Summary Judgment motion has created a binary event, with Judge Casper's decision on the issues of critical importance to the patent litigation the company has so much riding on. While handicapping such decisions is hard for even the most skilled patent litigator, the availability of the argument on video provides an additional and critical tool to help make such handicapping efforts more accurate. Accordingly, investors and their counsel tracking patent litigations should take notice of the video availability issue, and take advantage when the chance to utilize this powerful tool arises.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.